 "Tang Kin Fei, Group President & CEO, Sembcorp Industries")
The S$20 billion Sembcorp Industries, a Singapore-based leading energy, water and marine group, on Saturday launched its 2,640 megawatt (MW) power project at Nellore, Andhra Pradesh. The company, in which Temasek Holdings has 49.5% stake, has invested $4 billion in the country, which is the largest FDI from Singapore to India.
The group says it is ready to double or triple its investment in India, through organic and inorganic routes, of the environment is good. The management also discussed about its IPO plan and issues, including policy challenges, cost of doing business in India and others.
Sembcorp's management team including Tang Kin Fei, group president & CEO, Tan Cheng Guan, executive vice president & head group business development and commercial, Koh Chiap Khiong, group CFO and Vipul Tuli CEO and Country Head (India) spoke to T E Narasimhan on the eve of the Nellore project’s launch. Edited excerpts:
How important is India for Sembcorp, from your global business point of view?
Between 2011 and 2014, Sembcorp invested $4 billion in India, which is the fastest investment made in any part of the World. Around 30% of the Sembcorp's total installed capacity (10,000 MW across the globe) is in India.
India, China and ASEAN will be the key growth drivers.
In the next five years India will be one of the top three destinations for investments and it will also become top three in terms of revenue going forward. Demand for electricity will further increase considering per capital consumption is relatively low.
What kind of investment plans do you have in India?
We don't have any target. We can double or triple our investments, provided India give us better return. We have the capability and financial strength. Environment should also be conducive and business fundamental should be correct.
We are open to brown field, green field and inorganic.
At Nellore itself, we have a space to double our capacity. Also ready to take over the stressed assets and ready to invest in construction stage or acquire stakes of the promoters.
We are cautious and optimistic.
On the one hand, Sembcorp is bullish about India and feels India is an important market, but on the other hand, you are saying you are cautious. Why? What are the challenges you see in India?
When the new Government took over, there was huge expression of optimism. Today things are improving, but it is not a straight line.
India is different and difficult. Issues related to bureaucracy, uncertainty in policies still continues, although the government is trying to make it clear.
Consistency and stability in policy and regulation is the challenge.
(There are a) Few positive signs UDAY (Ujwal DISCOM Assurance Yojana), which is a very good initiative by the Government and it is encouraging. Sustainability of discoms is very important.
Government (has) also started giving deep thoughts and are putting right policies to encourage investments.
On coal supply, availability has improved and transparency as far as availability of coal has improved.
Strengthening of transmission network should be other focus.
How to reduce red tape, including bureaucracy, tax structure and how to make things easy to investors should be the other focus.
Do you think doing business in India is costly?
To set up a 2X660 MW power plant in China it would cost around $1 billion or slightly lower, but in India it would cost around $1.5 billion.
Cost of investment in India is very high due to high interest rate. In China interest rate is around five per cent, as compared to 13% in India.
Duration of project is longer, while in China it is less.
Sembcorp had a plan to list in India. What is the status?
Thermal business should achieve a critical position to list.
What is the critical size?
Today thermal portfolio is 2,600 MW once it doubles then we will consider to list. We will start the ground work for IPO next year. Certainty and sustainable income are also other key factors for listing.
What are your plans in renewable space? Sembcorp is not active in solar compared to wind. Why?
Currently renewable portfolio is around 900 MW, only wind. We are planning to add around 300-500 MW.
Solar prices are too low so we are not touching it. Then issues related to components are also there.
Will you list Green Infra (the renewable energy portfolio in which IDFC PE holds 35.9 %)?
Fundamental basis for listing is whether they can generate cash flow to grow business. We have not reached yet that level.
When we reach 3000 MW we can look at this (IPO). It is too early now, may be after 4-5 years we will see.
What are the other areas Group is looking at in India?
We are looking at Industrial water related projects, but yet to see any demand. We are also talking to various state governments (company has shown interest in building AP's new capital Amaravathi) solutions for urbansiation. Company can offer master planning, industry positioning, land development, can bring investors and can provide site utilities, like water and power.
